3.3 Understanding Costs and Revenue Streams

Sep 10, 2024

Lecture on Costs and Revenue Streams

Class Objectives

  • Categorize coasts into two groups.
  • Learn additional sources of income beyond product sales.
  • Two parts of the class: Types of Costs and Revenue Streams.
  • Assessment Objectives: Explain different types of costs and revenue streams (AO2).

Types of Costs

Definition

  • Cost: Expense required to acquire resources for production or sale of a product.

Categories of Costs

  1. Fixed and Variable Costs

    • Fixed Costs: Do not change with output level. Example: Internet fees for a manufacturer producing chairs.
    • Variable Costs: Change in proportion to output. Example: Cost of wood for chair production.
    • Misconception: Fixed costs can change due to external factors, not output.

  2. Direct and Indirect Costs

    • Direct Costs: Traceable to a specific project or product. Example: Wood for chairs (variable and direct).
    • Indirect Costs (Overheads): Apply to the entire organization, not specific to one product. Example: Internet fees.

Key Learning Points

  • Costs can be classified as:
    • Fixed and Direct
    • Fixed and Indirect
    • Variable and Direct
    • Variable and Indirect
  • Importance of understanding cost changes and relationships to output.
  • Charts should indicate costs, output, and units of measurement.

Revenue Streams

Definition

  • Revenue: Money received from customers for goods or services.
  • Profit = Revenue - Costs.

Common Revenue Streams

  1. Product Sales: Main source of income from selling main products (e.g., Apple products).
  2. Dividends: Income from shares in other companies.
  3. Interest from Bank Deposits: Earnings from depositing cash in banks.
  4. Merchandise: Income from selling branded goods (e.g., Disney toys).
  5. Donations: Main revenue for non-profits, streamers.
  6. Sponsorship Deals: Payments for advertising logos (e.g., on sports uniforms).
  7. Advertising Revenue: Earnings from ads (e.g., Telegram ads).
  8. Subscriptions: Revenue from services (e.g., Apple Music, iCloud).
  9. Royalties: Payments for intellectual property use (e.g., music royalties).
  10. Rental Income: Earnings from renting unused property.

Conclusion

  • Recap of class objectives: Categorize coasts and explain additional income sources.
  • Reminder: Review types of costs (fixed, variable, direct, indirect) and revenue streams.
  • Encouragement to engage with the class content and prepare for assessments.